Bailing out

Vikas Ecotech’s September result was nothing short of a disaster. The net profit plunged by 38% (yoy) to Rs.69 million, and net sales declined by 62% (yoy) to Rs.423 million due to significant supply constraints.  Following the results on November 19, the stock hit its 52-week low of Rs.11.88 on the same day.

Since its 52-week high of  Rs.48.50 on January 4, the stock dropped by 77%  leading to market cap erosion of Rs.9.24 billion in just 11 months. The speciality chemical manufacturer has been reporting a poor set of numbers at a time when its peers are riding on tailwinds as result of the rupee depreciation and the shift in sourcing of speciality chemicals to India due to the rise in the cost of production in China.

And while the stock continues to be in a downward spiral, the promoter Vikas Garg sold 11.3 million shares worth Rs.159 million on November 16. This is Garg’s first market sale since July 7, 2016, when he sold shares worth Rs.28 million. Garg had previously sold shares worth Rs.52 million in FY15.

After the sale in November, Garg’s stake in the company declined from 17.27% to 13.21%. But even as Garg has pared his stakes, the promoter entities Ketav Multicorp and Vinod Kumar Garg & Sons HUF bought shares worth Rs.33 million in FY19. As of September, the promoters have a 40.07% stake in the company compared to 39.53% in September 2017.

Vikas Garg’s decision to cut stakes comes just four months after he told a business news channel that he expects more than 20% growth rate to continue in the coming year as well despite a challenging first quarter. “This was a transitional quarter, and I strongly believe that for Q2 we will be almost 100% back to normal,” he told the business news channel on July 25. During the first quarter, the company reported 24% drop in net sales to Rs.869 million and 29% decline in profit to Rs.61 million.

But the situation hardly improved for the company and the first half so far has been a huge disappointment.  While analysts remained bullish on the stock post-December 2017 quarter results where net sales and profit grew by 30.96% and 44.47% respectively to Rs.1.10 billion and Rs.107 million, things started to go downhill for the company from the last quarter of FY18. With no respite in sight, foreign portfolio investors cut their stake in the company from 4.28% in June 2018 to 2.95% in September 2018.